HSBC launch 1.99% mortgage

The mortgage war which has broken out in
recent weeks was stepped up further today as a bank launched its lowest ever
two-year fixed rate.

Borrowers need a hefty 40% deposit to take
out HSBC's 1.99% market-leading deal and will need to stump up a £1,999 fee, or
£1,499 for HSBC current account holders.

Mortgage lenders have been slashing their
rates following the introduction of a multibillion-pound Government scheme in
August to boost borrowing by giving lenders access to cheap finance. The number
of mortgages on the market has increased by nearly a fifth since the scheme
started.

HSBC is not part of the Funding for
Lending scheme and said that, as with its mortgages generally, the deal is
primarily funded by retail deposits.

Peter Dockar, HSBC head of mortgages, said
the bank is "committed to offering competitive rates" to customers.

Much of the strongest competition among
mortgage lenders has been aimed at people with bigger deposits, although there
have been some notable exceptions, such as a fee-free deal at 3.99% being
offered by the Co-op Bank for people with a 10% deposit.

Borrowers also face higher hurdles to jump
in taking out a mortgage as lenders generally have tightened their borrowing
criteria amid the difficult economy.

Rachel Springall, spokeswoman for
comparison website Moneyfacts, said similar deals to that being offered by HSBC
have recently appeared on the market and have been withdrawn within weeks.

She said: "It's great to see a
mortgage deal that breaks the 2% barrier. However, applicants do need to take
into consideration application fees and other costs and not just the mortgage
rate.

"Tesco Bank pulled their direct 1.99%
two-year fixed deal at 60% loan-to-value after just one month, with a £995 fee,
showing market-leading rates don't stay around for long."